As a form of multi-family ownership, co-ops offer several distinct advantages. A few of the more significant advantages are highlighted.
First of all, title to the land is in the name of the housing corporation. This is significant because the corporation has a mortgageable asset. For example, if there were a need to fund a costly capital improvement, the membership could decide to fund the cost by placing a mortgage on the property resulting in small payments every month over time as opposed to one or more special assessments. Condominium associations have no “property” or equity to mortgage for long term financing.
Second, most delinquencies and other problem matters can be handled administratively, thereby avoiding costly and time-consuming legal action.
Thirdly, the membership can establish policies to control the owner/investor ratio within the association. A rental policy can be established to ensure that the number of investor-owned units does not exceed the secondary market requirements for First Trust financing. Furthermore, the real estate tax rate on the co-op’s property in the District of Columbia is likewise affected by the owner/investor ratio.
There are other advantages as well. One obvious benefit is the cost to settle a co-op purchase. The cost is modest when compared to buying a condominium. There is, at present, no real estate tax pro-ration, no title insurance, and no title search as is common when conveying real estate.
Another obvious benefit is the relative simplicity in organizing a co-op. For example, to convert an existing rental building from an investor owned rental property to property owned by a co-op association involves only a change in ownership. Simply stated, the property as a whole is conveyed from the seller of the apartment building to the co-operative corporation. The property does not have to be subdivided into individual lots as is the case in a condominium conversion, which reduces the cost to convert.
A more subtle benefit is the incidence of delinquencies in a co-op. Delinquencies are minimized as a result of the application process which may include minimum down payment requirements. Typically co-ops require prospective owners to apply for resident membership. This includes a statement of income, assets and liabilities, a credit report and the like. The process of having one’s financial status reviewed by the Board (i.e. future co-owners) discourages applicants with questionable credit. The co-op relies on the membership to meets its financial obligations which include, among other obligations, real estate taxes and the monthly payment on its corporate mortgage. Therefore, the credit worthiness of a prospective member is vital to the financial well being of the association. This process minimizes delinquencies. Lenders are quick to state that co-op borrowers, as a group, are reliable payers and that foreclosures are nearly non-existent.
Most of Washington’s “Best Addresses” * are co-ops. This is a convincing testimony to the fact that co-ops are a viable and proven form of ownership.
*Best Addresses, A Century of Washington’s Distinguished Apartment Houses. Goode, James M., Smithsonian Institution: 1988.